As of 4:44 p.m. EDT on a gold futures basis, the June 2022 most active contract is trading at $11.70, up 0.60% at $1949.50. There have been some alarming forecasts for the forthcoming release of the latest inflation data versus the CPI (Consumer Price Index) on Tuesday 12th March. Just last week, estimates were released by the Federal Reserve Bank of Cleveland, revealing a detailed estimate of the forthcoming CPI report suggesting inflation levels could reach as high as 8.41% in March. In addition, estimates for the first quarter of 2022 predict that quarter-on-quarter inflationary pressures could rise to as high as 9.1%.
The chart above is a 240 minute candlestick chart of gold futures. We included trend lines highlighting a series of lower highs as well as a series of higher lows. This has created a compression triangle and a breakout above the current resistance level. This suggests that gold has completed its consolidation phase and is back in solid rally mode. This leaves our next target for potential resistance at $1,967.60. Above this price point there is resistance at $2000 and major resistance at $2016.
While the US Federal Reserve maintains that inflation levels have peaked and should decline later in the year, this assumption is not set in stone as many variables could continue rising inflationary pressures throughout the year. One of the biggest unknowns is the current crisis in Ukraine, which has led to global inflationary pressures due to supply chain problems in its agricultural exports to European Union countries, and the ongoing boycott of Russian goods, oil of course, but also much more, in response to Russia’s invasion in Ukraine. This has had a dramatic impact on crude oil prices around the world. It also led to the release of over 200 million barrels from the strategic oil reserves of the United States and the European Union.
Russia’s escalated military action following its invasion of Ukraine continues to create geopolitical uncertainty and could prolong the rise in inflationary pressures that began as countries around the world committed massive amounts of capital to stave off the recession that was a result of the global pandemic.
There is now concern that future action by the Federal Reserve in its attempt to dampen the rise in inflation will result in an end to the economic recovery, leading to a return to recession in the United States.
James Knightley, Chief International Economist at ING, said: “As the Fed appears to feel the need to ‘catch up’ to regain control of inflation and inflation expectations, a rapid pace of aggressive rate hikes increases the likelihood of a policy failure – a move that will suffice could to plunge the economy into recession.”
Bloomberg News recently reported that economists polled raised their US inflation forecast again and downgraded their expectations for economic growth through most of 2023. This forecast is based on the potential risks posed by the Federal Reserve trying to lower the current level of inflation.
Many uncertainties will further increase inflationary pressures worldwide. Confidence is waning among many economists that the Federal Reserve can effectively pull off a soft landing. Assuming that the Federal Reserve will not be able to pull this off without causing damage leads to one of two things. The return of the global economic recession or the continuation of rising inflation. Any of these outcomes will have a huge impact on global economies and will continue to provide strong support for safe-haven assets like gold, pushing them higher in price.
If you want more information, just use this link.
I wish you good business as always,
Disclaimer: The views expressed in this article are those of the author and may not reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage resulting from the use of this publication.